Private finance: a high-quality problem for NbS project developers

The way we finance nature recovery is changing.

Growing numbers of investors are realising that attractive ROIs can be delivered by looking after our planet. As pioneering investors validate scalable ways to fund nature restoration, private capital pools are beginning to flow into environmental markets.

In this article, we explore how a new cohort of private financiers is driving unprecedented demand for high quality nature-based projects, unlocking exciting new opportunities and challenges for teams restoring nature.

Financing nature

Nature based solutions (NbS) offer practical pathways for investment to flow from global capital markets into nature. This figure is one that must scale quickly, if we’re to meet the $700 billion annual financing gap required to safeguard the natural environment.

There are three reasons why the investment case for nature has never been more compelling:

• Growing consumer and regulatory pressure on corporates to disclose their climate and nature-related risks.
• Innovative new financial mechanisms have emerged in environmental markets to demonstrate the investment case for quality nature-based projects
• Nature assets provide investors with an attractive additional benefits - such as hedging against inflation

It is estimated that nature positive economies can generate over $10 trillion in new annual business value and 395 million jobs by 2030. Investors, project developers and technologists are working together to leverage new investment opportunities to protect and restore nature at scale.

Private finance will deliver new opportunities for NbS project developers

1. Private funding can scale project portfolios

The New Forest fund is an exemplary model for delivering investment into specific NbS asset classes. New Forest has $4.5 billion under management and has invested in forestry, land and conservation projects spanning across 1 million ha.

Corporates seeking to inset and offset their climate and nature-related risk are also looking to finance high quality NbS projects. Recent examples include Apple’s $200 million ‘Restore Fund’ and L’Oreal’s $57 million commitment to restore over 1 m+ hectares of damaged marine and terrestrial ecosystems.

Project developers that can demonstrate robust, consistent and effective environmental and commercial returns are well placed to receive new pools of private funding from this emerging category of specialised nature investors.

2. Less established project types are now viable

Earlier this year, the Delta Blue Carbon Project sold 3 million blue carbon credits to Microsoft, Carbon Growth Partners, Trafigura and Respira International in one of the largest transactions of its kind. As carbon and environmental markets for ecosystem services mature, less established project types such as marine/coastal and peatlands are also becoming financially viable and scalable.

By accessing a suite of diversified income streams created through sustainable management of natural assets, developers can accelerate projects through pre-feasibility stages.

3. Unlock natural asset income potential

To unlock scale and attract institutional or corporate investment, project developers are working together to aggregate projects into exciting joint ventures.

A new partnership between two of Australia’s leading nature project developers, GreenCollar and AgriProve will lead to a fully integrated suite of nature based carbon methods. Similarly, global advisory and project development business, NatureCo was born out of a partnership between Point Advisory and Biodiverse Carbon. NatureCo will deliver nature-based solutions in the Asian, African and Latin American markets.

These new partnerships support capacity building amongst the industry and ultimately enables farmers, graziers and other land managers to take a ‘whole of landscape approach’ to unlock the full spectrum of environmental and commercial potential of assets.

A growing price to pay for private NbS funding

1. Requirements for bespoke reporting

NbS data is technical and complex. Efficiently collecting, managing and aggregating complex data sets in email chains and endless spreadsheets can be one of the biggest barriers to scale. Errors caused by manual data handling can also lead to lengthy delays and costs.

Teams that can manage high integrity NbS data will play an important role in building investor confidence in nature-based solutions. To successfully access funding, project developers must be prepared to analyse and report on NbS outcomes in a way that’s compliant with the bespoke requirements of investors.

2. Time consuming due diligence processes

Without in-house knowledge on NbS projects, mainstream investors approach nature-based asset classes with sensitivities on risk. This can create time consuming due diligence processes for project developers to manage when seeking private investment.

Project developers can build trust by keeping financiers updated with the right level of transparency across project performance, utilisation and forecasting. High integrity NbS data management and reporting ease stakeholder concerns through greater certainty of final outcomes.

3. Scaling teams to meet demand

To meet the unprecedented demand for NbS projects, project developers must scale existing teams and build internal operating capacity quickly. Project developers need to juggle challenging complexities associated with growth, whilst also ensuring the consistent delivery of high quality projects.

Project teams that leverage systems and strategies to manage resourcing issues will be best placed to take a larger share of the growing NbS market.

Conclusion

There has never been a better time to restore nature. Project developers have a unique opportunity to scale and accelerate the development of NbS pipelines to match the volume and quality desired by investors. However, teams restoring nature must tackle the complex nuance of participating in a rapidly growing industry, whilst also delivering on the expectations of a new cohort of financiers.

As private investment in nature continues to grow, so too does the need for robust management systems that sets the teams delivering high quality projects and assets up for success complexity.

Need support managing a portfolio of nature-based projects and stakeholders? Book a demo with Cecil to learn more on how we’re setting teams up for scale.